FOREXYARD: Forex News Blog

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Does piracy in somalia affect trade? Posted: 19 Nov 2008 01:07 AM PST Recently we have begun seeing reports of increased piracy in the waters off the coast of Somalia. It seems these pirates have become more brazen in their tactics after successfully seizing a Saudi Arabian super-tanker carrying over $100 million in Crude Oil. While this tactic has proven successful for the perpetrators thus far, investors are wondering whether or not it has any impact on the market which has been stymied as a result. International lawmakers have been at work to strengthen the joint agreements which protect shipping through the dangerous waters in the Gulf of Aden. The legislation has been focused so far on the shipping of humanitarian aid. However, the attack on an Aramco-owned super-tanker indicates a shift towards a more dangerous form of piracy: attacking Oil shipments. On 17 November, after the report of this act of piracy was released, traders saw a 3 Dollar spike in the price of Crude Oil. While the price later settled back into its downward trend, the long-term impact may stem from a subsequent diversion of shipping lanes to avoid the troubled Somali coast. This will slow the delivery speed of Oil supplies to and from Middle Eastern countries, a factor which has yet to be calculated into the price of Oil. But what is the real impact? To be honest, there isn’t one. Investors trading Crude Oil may have felt a short-lived tremor of panic from the news of decreased supply, but the majority of traders in the market today are too concerned with the global economy as a whole to focus on the news of this small setback. After heightened anxiety, the market calmed down as other concerns were more pressing. The fact that this event, which removed 2 million barrels of oil from the market – equal to one day of production for Saudi Arabia – only affected prices for around 4 hours indicates the strength of the downward momentum in the price of Crude Oil. There is little reason to doubt the predictions being made by many analysts that Crude Oil prices will go beneath $50 a barrel by the end of December 2008. For more articles from ForexYard analyst Greg Holden, click here.

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